Good Growth

By June 14, 2010blog

Growth is fun. Healthy companies have lots of growth opportunities. With those opportunities come the need to hire on more folks. Those folks cost money.

I’ve found that if a company is growing profitably or has easy access to capital, then these hiring decisions are not scrutinized as much as they probably could be. What I have seen happen with several companies in the past year is they hire like crazy and then realize their growth doesn’t support a healthy profit margin like they thought it would.

As we were growing RegOnline 50% a year we would have a wish-list of positions we wanted to hire for. How did we decide how many were too much? We knew we wanted to maintain a certain margin level every month – like 40% net profit. We were willing to sacrifice some of that margin to hire more, having a floor of 25%. It would have been easy to say, well since we are continuing to grow we can hire more than that and grow into our profitability again later. But we didn’t. And I’m glad we didn’t because we had lots of months where we didn’t grow or went backwards. We would have felt unnecessary pressure because of a bloated overhead. It felt much better to know we were continually enjoying great profit margins AND growing.

This process then forced us to prioritize our hires based on ROI. How would each hire produce more profitability for the company, what was the certainty level, and in what period of time. Adding to our support or sales team based on metrics was a little easier than doing the math on another developer or admin person. None the less, prioritizing our hires and doing the math helped us stay profitable in up and down months.

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